Fitch Affirms Tunisiana at 'BBB-'; Outlook Negative

Published on: 24th Jul 2013

Note -- this news article is more than a year old.

Fitch Ratings has affirmed Tunisiana's debt ratings, but said that the outlook on the foreign currency rating is negative. The outlook on the local currency ratingĀ has been revised to stable from negative.

Fitch said that the ratings reflect Tunisiana's leading market positioning
and solid cash flow generation. The constraining factors on Tunisiana's ratings
are its relatively small size and the fact that its operations are limited to
Tunisia, where some regulatory risk exists.

Tunisia's Country Ceiling is still under pressure as is Tunisiana's foreign
currency IDR. The Tunisian regulation imposes restrictions on Dinar's
convertibility and how much money Tunisian and guests can convert into foreign
currency and transfer overseas. However, this has the benefit of reducing the
risk of excessive dividends being upstreamed to shareholders.

Unchanged Leading Market Position Despite Orange

Orange won a licence to offer mobile and fixed-voice and data services in
2009, yet its presence has not affected Tunisiana, which has maintained its
market share. Orange, previously owned by Investec a Tunisian subsidiary of
Mabrouk group (the former President's in-laws) and now taken over by the
Tunisian state, has faced challenging times after the change in regime in 2011.
This has prevented Orange from capitalising on its first mover advantage.
Tunisiana was awarded licenses to launch and operate a 3G mobile network and a
fixed-line network in 2012 and this should enable it to defend its market
position. Tunisiana had 55% market share, in terms of subscribers, in 2012
compared with 13% for Orange. Orange has gained market share against the
incumbent Tunisie Telecom.

Low Growth Prospects in 2013 and 2014

The mobile penetration rate in the country is high reaching 122% in 2012 and
growth over the past two years has been driven by higher usage among declining
tariffs. Fitch expects the growth over the next two years to be in the low
single digit driven by low GDP growth (Fitch estimates 3.5% to 4.0% in 2013 and
2014, respectively). Management expects mobile data to progressively replace
mobile voice over the medium term. The use of mobile phones for payments (mobile
money) is also offering new opportunities for growth to telecom operators.

Reduced FCF

Tunisiana's FCFs are supported by its high EBITDA margins (sustained above
50%). The issuance of the 3G and fixed-line licenses in 2012 for USD135m has
weighed on the company's free cash flow(FCF), but it remained positive at TND
52m, i.e 4.6% of sales (27.9% in 2011) supported by the absence of dividends.
Tunisiana will distribute dividends to its shareholders in 2013 and this should
take FCF to negative territory.

End of Net Cash Position
Tunisiana has had a net cash position since 2010. The company has been able to
fund its capex and other financing needs from operating cash flows up to 2012.
The net adjusted debt/EBITDAR ratio has reduced to -0.6x at FYE12 (- 0.5x at
FYE11). Tunisiana is about to raise TND220m in the coming weeks (and should
raise TND160m before year-end) to fund its 3G and fixed-line licenses, its
future capex and satisfy dividends and Fitch expects the net leverage ratio to
increase to 0.6x at FYE13, but remain consistent with the current rating. We
expect the FFO interest coverage to remain good with a ratio of 36x at FYE13
(690x at FYE12).

Standalone Rating
Ooredoo (A+/Stable) now holds 90% of Tunisiana's capital. However Tunisiana
continues to be rated based on the standalone profile of its Tunisiana-branded
mobile business in Tunisia. Based on Fitch's parent and subsidiary rating
linkage methodology, Fitch notes that there are uncertainties about the
remaining 10% stake of Tunisiana, currently held by the Tunisian state (formerly
by Princess Holding), which could ultimately be subject to an IPO rather than
sold to Ooredoo.